Investment needed for infrastructure boom

Created: May 28, 2024 07:58 AM

US engineers in 2021 listed more than 60,000 structurally deficient American bridges, such as this railroad bridge over the Chattahoochee River on the Georgia/Alabama border (Source: AP)

Infrastructure spending is a powerful secular trend poised to benefit many companies across several key industries. According to the Global Infrastructure Hub, a G20 initiative, an estimated $94 trillion in investments will be needed by 2040 to address economic and demographic shifts, as well as to bridge existing infrastructure gaps.

GIH projects a substantial global infrastructure investment gap of approximately $15 trillion by 2040, representing a 16 per cent deficit in infrastructure investment. Closing this gap will necessitate an increase in annual infrastructure investment from the current 3 per cent of globalgross domestic product to 3.5 per cent.

Moreover, fulfilling the Sustainable Development Goals will require an additional $3.5 trillion, elevating the investment gap to around $18 trillion and the investment requirement to 3.7 per cent of global GDP.

Governments worldwide have acknowledged the urgent need to upgrade ageing infrastructure in order to bolster sustainable economic growth, enhance public safety, and drive post-pandemic recovery efforts. Significant investment is being channelled into upgrading transportation networks, such as roads, bridges, and railways, as well as expanding digital infrastructure to support the growing demand for high-speed internet and 5G connectivity.

Additionally, the global push towards greener, more resilient infrastructure to combat climate change is driving substantial spending on renewable energy projects, water management systems, and sustainable urban development.

Investing in infrastructure-related stocks presents a promising opportunity due to the robust and sustained demand generated by these projects. Companies operating in construction, engineering, materials, and technology sectors are already benefiting from heightened government spending, with many securing long-term contracts that provide stable revenue streams and predictable cash flows.

Furthermore, the emphasis on sustainability and resilience in new infrastructure projects offers growth prospects for firms specialising in innovative solutions. Given the fundamental role of infrastructure development in economic advancement, stocks in this sector typically exhibit lower volatility compared to other sectors, making them attractive for both growth-oriented and income-focused investors.

The US Infrastructure Investment and Jobs Act enacted in November 2021 authorises $1.2 trillion for transportation and infrastructure spending with $550 billion of that figure going towards “new” investments and programmes.

Companies engaged in transportation infrastructure, construction equipment manufacturing, and natural resource production, such as Caterpillar, Deere, United Rentals, Eaton and CRH, are poised to experience substantial growth opportunities.

Notably, the demand for copper, a critical industrial metal extensively used in various sectors including construction, automotive, and renewable energy, is expected to rise significantly. Companies like Freeport McMoran, which operates copper mines in the US and overseas, should continue to see further benefit from the increasing demand for copper driven by infrastructure projects and the growing adoption of electric vehicles.

The global momentum towards sustainable infrastructure development, coupled with government commitments to substantial investment in this sector, positions infrastructure-related investments favourably for long-term income and growth potential.

• Bryan Dooley, CFA, is the Chief Investment Officer at LOM Asset Management Ltd in Bermuda. Please contact LOM at +1 441-292-5000 or visit www.lom.com for further information. This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. Readers should consult with their Brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority